Retired savers slowly drawing money from a pension pot will get a 5.5pc boost
next month.

The amount of money retired savers can withdraw from a self-managed pension pot will next month hit its highest level since November 2011.

The maximum a 60 year-old can take from an income drawdown pension will increase from £6,120 to £6,360 on each £100,000 saved - equivalent to 5.5pc extra. However, this is still far below levels before the financial crisis.

The increase is a help to those who decide against buying an annuity - which turns a pension into a set lifetime income - and instead keep the money invested in the stock market during retirement.

This option to avoid annuities is open to everyone. However, those with less than £20,000 of pension income elsewhere are subject to a cap set each month by the Government Actuary Department (GAD).

It uses the rates on long-term government bonds, called gilts, to determine how much is a safe limit to withdraw. The cap is to prevent people exhausting their savings and falling back on state handouts in old age. The "GAD rate" has increased from 2.75pc to 3pc over the past month.

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Pensioners must review their income drawdown every three years - either with an adviser or drawdown provider - adjusting it to reflect the latest GAD reading. Rates have fallen so low in the wake of the government stimulus to prop up the economy that some retirees withdrawing the maximum have suffered 60pc cuts to their incomes.

The increase in rates will help all savers about to take their pension. Those who have suffered cuts can take advantage by calling an emergency review on the anniversary of their last one.

Ray Chinn, head of pensions and investments at LV=, said: “Rates have risen to their highest levels since November 2011, which is good news for those approaching retirement. With standard lifetime annuities perceived to offer poor returns for retirees, alternatives should be considered.”

Alastair Black, of Standard Life, said: “The gilt yield finished at 3.24pc today but unfortunately due to the rounding system, which rounds down rather than up, this means that people are losing an additional 0.25pc this month.

“However we expect to see rates improve further once GAD have completed their review of rates which the Chancellor called for back in March.”